pri Section 263 order invalid if it covers Matter not part of Limited Scrutiny Section 263 order invalid if it covers Matter not part of Limited Scrutiny

Case Law Details

Case Name : Deccan Paper Mills Co. Ltd. Vs CIT (ITAT Pune)
Appeal Number : ITA No. 1013 & 1635/PUN/2014
Date of Judgement/Order : 10/10/2017
Related Assessment Year : 2009-10 & 2010-2011

Deccan Paper Mills Co. Ltd. Vs CIT-IV (ITAT Pune)

Now, coming to the aspect of book profits which was considered by the Commissioner and the order of the Assessing Officer was held to be erroneous and prejudicial to the interest of revenue. In this regard, it may be pointed out that the case of assessee was picked up for scrutiny under CASS for the limited purpose of verifying the Chapter VI-A deduction. Once the case is picked up for specific purpose under CASS, then it is outside the purview of the Assessing Officer to look into any other aspect other than the aspect for which it is picked up. Hence, the Assessing Officer has not formed any opinion in respect of computation of book profits in the hands of assessee. Once, no such opinion has been formed by the Assessing Officer, the Commissioner has erred in holding the order of the Assessing Officer to be erroneous and prejudicial to the interest of revenue in this regard. Accordingly, we reverse the findings of the Commissioner.

Accordingly, we hold that the order passed by the Commissioner under section 263 of the Act is invalid and the same is quashed for both the assessment years.”

FULL TEXT OF THE ITAT JUDGEMENT

Both the appeals filed by the assessee are against separate orders of CIT-IV, Pune, dated 11.03.2014 and 16.07.2014 relating to assessment years 2009-10 and 2010-11 passed under section 263 of the Income Tax Act 1961 (in short the ‘Act’).

2. Both the appeals filed by the assessee were heard together and are being disposed of by this consolidated order for the sake of convenience.

3. The facts and issues in both the appeals are identical. However, for the sake of adjudication, reference is being made to the facts and issues in ITA No.1013/PUN/2014.

4. The assessee in ITA No.1013/PUN/2014, relating to assessment year 2009-10 has raised revised grounds of appeal which reads as under:-

1. On the facts in the circumstances of the case and as per law, the Ld. Commissioner of Income-tax erred in setting aside the order passed by the Assessing Officer and directing to pass the fresh order.

2. The Ld. Commissioner of Income-tax had erred by not considering the details and an explanation submitted by the appellant and has passed the order.

3. Without prejudice the Ld. Commissioner of Income-tax was not justified in considering the assessment order dated 19/12/2011 as erroneous and prejudicial to the interest of the revenue.

5. The assessee is aggrieved by exercise of revisionary powers by the Commissioner under section 263 of the Act in the case of assessee for both the years under consideration.

6. Briefly, in the facts of the case, the assessee had filed the return of income for the year under consideration declaring total income of Rs.91,85,220/-. The assessment was completed in the hands of assessee under section 143(3) of the Act on book profits under section 115JB of the Act at Rs.4,68,21,658/-. The Commissioner was of the view that there was excess allowance of deduction under section 80IB(10) of the Act and also incorrect computation of book profits, hence, show cause notice was issued under section 263 of the Act. The said show cause notice is reproduced at pages 2 and 3 of the order passed under section 263 of the Act. The Commissioner was of the view that where the assessee had entered into Development Agreement with the developer for development of land lying with it, then it clearly points to the fact that the assessee had not developed any housing project. The Commissioner also noted that the assessee received consideration in two forms i.e. one towards cost of land and secondly in the form of 50% of profit yielded by Kunwar Prabhu Joint Venture, which in turn, derived the consideration from Development Agreement entered into with the developer. The 50% of profit from the said Joint Venture was Rs.2,49,42,898/-, on which the assessee had claimed deduction under section 80IB(10) of the Act; which was found to be not correct by the Commissioner as the assessee did not act as developer. Further, the assessee had received consideration @ Rs.200/- per sq. ft. for 1,36,037 sq.ft. of land which was further bifurcated in two parts – one of Rs.1,22,43,330/- (worked out @ Rs.90 for 1,36,037 sq.ft.), which was offered as long term capital gains; whereas the balance consideration of Rs.1,49,64,070/- (worked out @ Rs.110/- per sq.ft. for 1,36,037 sq.ft.) was offered as business profit from sale of land on which again deduction under section 80IB(10) of the Act was claimed. The Commissioner was of the view that the aforesaid deduction under section 80IB(10) of the Act was admissible in respect of profits and gains derived from developing and building housing projects, whereas the assessee had received consideration on account of assigning the development rights to the developers. The Commissioner was of the view that cost of land paid to assessee company would form part of cost of housing projects in the hands of Joint Venture, which in turn, would be an element of expenditure in the hands of said Joint Venture. He thus, held that the same as such could not partake the character of profit derived from housing project so as to qualify for deduction under section 80IB(10) of the Act in the hands of recipient. The Commissioner was of the view that on this portion, deduction under section 80IB(10) of the Act should not be allowed and this has resulted in excess carry forward of MAT credit. He further noted that the Assessing Officer taxed book profit of Rs.4.68 crores as offered by the assessee. While computing the said book profit, the assessee had reduced carry forward losses of Rs.53,28,640/- in assessment year 2009-10 and the same was accepted without their being any carry forward unabsorbed depreciation. The omission to disallow carry forward losses, as per the Commissioner, had resulted in under-assessment of book profit by Rs.53,28,640/- involving short levy of tax and interest under section 234B of the Act.

7. The Commissioner gave show cause notices to the assessee, who time and again sought adjournments but did not furnish details completely and did not appear before the Commissioner and hence, he proceeded to decide the issue on the basis of documents filed before the Assessing Officer i.e. during the course of assessment proceedings. The first issue which was noted by the Commissioner was that as per the return of income, the assessee had shown net profit of Rs.5,21,50,298/- which consists of 31% of revenue generated on sale of flats in Phase-I and long term capital gains. The expenditure as per Trading (Construction) Account for the year ending 31.03.2009 was shown at Nil, which proved the fact that the assessee was not developer and was not developing any housing complex which would warrant any claim under section 80IB(10) of the Act. The expenditure which was booked in the Profit and Loss Account was on account of administrative expenses and financial expenses, which were regular in nature. The Commissioner questioned how the profit from Kunwar Prabhu Joint Venture account and the consideration received on sale of land could be allowed deduction under section 80IB(10) of the Act. The Commissioner after noting the history of the case also noted the fact that in the year 1996, the assessee had entered into Joint Venture Agreement with M/s. Rajkotia Securities Ltd. for development of 31,827.71 sq.mtrs. of land The assessee was to receive an amount equivalent to Rs.200/- per sq.ft. towards entire cost of land and the balance after deduction of any expenses was to be shared equally. Later on, in April, 2007, the assessee / Joint Venture entered into mutual understanding that M/s. Shri Venkatesh Creators, Promoters and Developers (in short ‘Shri Venktesh), as per which, instead of handing 31% of constructed land, the developer was to give 31% revenue from net sale to the assessee / Joint Venture as consideration. The assessee also entered into an agreement with M/s. Ashray Premises / Regency Mahavir Properties for development of 32659 sq.mtrs. As per terms and conditions, M/s. Regency Mahavir Properties was to handover free of cost 65000 sq.ft. of constructed premises to the assessee company as its consideration. One of the partners in M/s. Ashray Premises resigned / retired; the assessee / Joint Venture entered into another agreement with M/s. Regency Mahavir Properties, as per which the developer was to handover free of cost to the Joint Venture 60160 sq.ft. of constructed premises as its consideration. The Commissioner was of the view that the assessee was never a developer and hence, the provisions of section 80IB(10) of the Act were not applicable. The Commissioner then referred to the Articles of Agreement entered into between the Joint Venture and Shri Venktesh and noted that the development rights of vacant piece of land were granted to the said developer and in lieu thereof, the developer had to handover 31% of constructed premises upon the said property. The relevant para of Articles of Agreement are reproduced at pages 9 and 10 of the order of Commissioner. The Commissioner further observed that where the Assessing Officer had failed to make any enquiries as how the assessee was entitled to claim the deduction under section 80IB(10) of the Act and further failed to note that if actually work of construction of housing project had been undertaken by the assessee, then why the assessee is entitled to the deduction when the assessee had only shown regular administrative expenses amounting to Rs.54,21,261/- and bank charges of Rs.5,976/-. In Schedule ‘D’ of fixed assets, the assessee had shown Rs.54,27,237/- as addition to work-in-progress which was contrary to the factual position of Trading (Construction) Account showing Nil expenditure during the year under consideration. The Commissioner held that failure to enquire by the Assessing Officer and mis-application of law and non conduct of any enquiries makes the assessment order passed by the Assessing Officer as erroneous in so far as it was prejudicial to the interest of revenue.

8. Similarly, with regard to calculation of book profits of Rs.4.68 crores, which was declared by the assessee in its computation of income and was accepted as such by the Assessing Officer, the Commissioner noted that where the assessee had reduced sum of Rs.53,28,640/- from net profits but where the record suggested that there were no brought forward losses on depreciation and as per Explanation (iii) of section 115JB of the Act, the credit could be given to the amount of loss brought forward or unabsorbed depreciation, whichever was less, as per books of account and since there was no unabsorbed depreciation in the case, hence, the assessee was not entitled to reduce brought forward losses of earlier years, while working out the book profits. The under-estimation of book profits of Rs.53,28,640/- involving short levy of tax and interest under section 234B of the Act made the same to be cause of mis-application of law and the order passed by the Assessing Officer was held to be erroneous in so far as it was prejudicial to the interest of revenue. In this regard, reliance was placed on the ratio laid down by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC) and in the case of Boston Analytics P. Ltd. Vs. ITO 2012-TIOL-605-ITAT-MUM. The Commissioner in conclusion held that the assessment order dated 19.12.2011 in view of the entirety of facts and circumstances, was erroneous and prejudicial to the interest of revenue and the same was set aside. Further, the Commissioner directed the Assessing Officer to pass fresh order after reconsidering all aspects of the matter and after carrying out proper enquiries. The Commissioner further directed the Assessing Officer to provide an opportunity of being heard to the assessee before taking decision as per law on the above mentioned issues.

9. The assessee is in appeal against the order of Commissioner passed under section 263 of the Act.

10. The learned Authorized Representative for the assessee after taking us through the factual facts of the present case pointed out that the assessee was a developer of housing project and hence, was eligible to claim the deduction under section 80IB(10) of the Act. The assessee stated that it had entered into Joint Venture Agreement dated 26.05.1996 with Rajkotia Securities Ltd. (in short ‘Rajkotia’) for the purpose of carrying on the development of land and in this regard, it was agreed upon that both the parties shall jointly make all efforts to obtain necessary facilities, infrastructure and resources for development. The fees of Architect, Consultants, scrutiny fees for sanctioning of FSI expenses for sanctioning of plans, advertisement cost and cost of providing security had to be borne by the assessee. The development initially had to be done by the assessee and Rajkotia. However, subsequently the said Joint Venture between the assessee and Rajkotia entered into an agreement with Shree Venkatesh to jointly undertake the development and construction of housing project on the said land. The terms of agreement dated 05.10.2004 were agreed upon, under which Joint Venture had introduced the land on which the development had to be undertaken. The Joint Venture had to obtain various sanctions and approvals from the Government Authorities for the development of the said land. Shree Venkatesh under the agreement was assigned the responsibility of carrying on the construction work on the land. The assessee claimed that since it had after introducing the land in housing project had obtained various permissions and approvals over the period of time and the expenditure incurred on getting the approvals had to be incurred and also the necessary risk and responsibilities were assumed by KPJV partners. The Joint Venture KPJV was entitled to 31% value of the constructed premises and the balance 69% was the share of Shree Venkatesh. The assessee thus, claims that since it was the developer of the housing project and was sharing the risk and revenue of the project, then the assessee is entitled to claim the deduction under section 80IB(10) of the Act. He further, referred to the order of Tribunal in the case of Rajkotia, where the deduction under section 80IB(10) of the Act has been allowed to him. The Assessing Officer in the case of Rajkotia had given a finding that the conditions in section 80IB(10) of the Act are fulfilled i.e. in respect of agreement entered into with Venkatesh. The learned Authorized Representative for the assessee referred to the agreement dated 05.10.2004 which was filed during the course of hearing and pointed out that JV had entered into the agreement with the developer and as per the agreement, ULC permission for re-developing and demolishing the existing structures and after obtaining the plans and the development rights being granted to the developer but the JV was to receive only 31% of the total consideration. Our attention was drawn to the page 41 of the Paper Book filed by the learned Departmental Representative for the Revenue for assessment year 2010-11 and working of 31% share was referred, wherein Rajkotia had declared its income and was also allowed the claim of deduction under section 80IB(10) of the Act. The Tribunal in the case of Rajkotia allowed the deduction under section 80IB(10) of the Act. The learned Authorized Representative for the assessee at this juncture stressed that the claim of assessee cannot be differed where the role of the assessee was greater. He further referred to the order of Assessing Officer for the instant assessment year and pointed out that one of the reasons for denying the deduction under section 80IB(10) of the Act was no expenditure debited to the Profit and Loss Account during the year. The assessee in this regard explained that KPJV through the assessee had introduced land admeasuring 18639.64 sq.mtrs. for the development of building project. Several permissions and approvals were obtained in the past by the assessee and KPJV for which necessary expenses were incurred. In the year under consideration, though no expenditure was incurred but in any case, the incurrence of expenditure was not determinative of the fact whether the assessee was engaged in the activities of development and construction of housing project. Further, the assessee again reiterated that since it had introduced the land, the cost to obtain approvals for permissions, etc. and had also undertaken certain obligations which may result in incurring of expenditure, it cannot be said that the assessee has not incurred any expenditure. The learned Authorized Representative for the assessee in this regard placed reliance on the ratio laid down by the Hon’ble High Court of Karnataka in CIT Vs. Shravanee Constructions (2012) 22 taxmann.com 250 (Kar.). It was also pointed out by the learned Authorized Representative for the assessee that SLP filed by the Revenue has been dismissed in this case.

11. The second aspect which has been stressed by the learned Authorized Representative for the assessee was that there was no merit in the order of the Commissioner in invoking the provisions of section 263 of the Act. He stressed that where the claim made by the assessee was prima facie allowable and was not a claim which was totally unsustainable in law, the provisions of section 263 of the Act could not be invoked. Reliance in this regard was placed on the ratio laid down by the Hon’ble Supreme Court in CIT Vs. Max India Ltd. (2007) 295 ITR 282 (SC). The second aspect which was pointed out by the assessee was that the assessee had entered into Joint Venture in earlier year and had converted his land into stock in trade. The assessee had furnished complete evidences in this regard. The case of assessee was selected under scrutiny in CASS to verify Chapter VI-A i.e. deduction claimed under section 80IB(10) of the Act. In this regard, reference was made to the order of Assessing Officer and after completion of assessment, the exercise of jurisdiction under section 263 of the Act by the Commissioner in not accepting the possible view taken by the Assessing Officer was held to be invalid. The assessee in this regard placed reliance on the following decisions:-

i) Abdul Khader Vs. ACIT (2012) 137 ITD 188 (Bangalore)

ii) CIT Vs. Nirav Modi (2017) 390 ITR 292 (Bom)

iii) CIT Vs. Nirav Modi (2017) 77 com 78 (SC)

iv) Moil Ltd. Vs. CIT in Income Tax Appeal No.67/2016, judgment dated 26.04.2017

v) DCIT Vs. Bombay Real Estate Development Co. Pvt. Ltd. in ITA No.6504/Mum/2008, 4219/Mum/2009, 4728/Mum/2007 and 6505/Mum/2008, relating to assessment years 2002-03 to 2005-06, order dated 03.06.2011

12. The learned Authorized Representative for the assessee raised another issue that where the case of assessee was selected under CASS to verify the deduction claimed under Chapter VI-A of the Act and the Assessing Officer made enquiries and took the view, then there is no merit in the exercise of revisionary powers by the Commissioner under section 263 of the Act on the issue of deduction claimed under section 80IB(10) of the Act.

13. The next issue on without prejudice basis which was raised by the assessee was that the findings of Commissioner are self contradictory, wherein it has held that if the assessee has merely transferred the land, the resultant profit was assessable as capital gains on the date of transfer i.e. 05.10.2004 and even if it was assessable as business income, then it was taxable in that year, where the assessee had no role in the construction activity. The learned Authorized Representative for the assessee pointed out that the land was transferred on 05.10.2004 which falls in assessment year 2005-06 and in such case, the assessment order passed for the captioned assessment year cannot be said to be prejudicial to the interest of revenue.

14. The Commissioner had also exercised the revisionary powers on calculation of book profits under section 115JB of the Act. The learned Authorized Representative for the assessee pointed out that where the assessment was taken up only for limited issue and verifying the claim of deduction under section 80IB(10) of the Act, hence, the powers of Assessing Officer in the proceedings were limited and he had no power to verify any other claim. In view thereof, he further stated that the powers of revision under section 263 of the Act could not be invoked where the Assessing Officer himself did not have the power to examine any other issue. In this regard, reliance was placed on the following decisions:-

i) Gift Land Handicrafts Vs. CIT (2008) 19 SOT 5 (Delhi) (URO)

ii) Sanjeev Kr. Khemka Vs. Pr. CIT in ITA No.1361/Kol/2016, relating to assessment year 2011-12, order dated 02.06.2017

iii) Nayek Paper Converters Vs. ACIT reported in 93 TTJ 574 (Cal)

15. The learned Authorized Representative for the assessee has filed written note which has been placed on record.

16. The learned Departmental Representative for the Revenue in reply stressed that the developer is a person who develops the facility. However, the assessee in the present case had neither developed the land nor constructed housing project except for contributing the land. The approval from local authority undoubtedly, was in the name of assessee company but the Construction (Trading) Account for the year ending 31.03.2009 which is placed at page 4 of the Paper Book reflected no expenditure being incurred. Since the assessee had not incurred any expenses on the construction of project, the assessee as per the learned Departmental Representative for the Revenue, could not be called as developer relating to the housing project. The work of development was by Shree Venkatesh. The learned Departmental Representative for the Revenue referring to the provisions of section 80IB(10) of the Act pointed out that the said deduction is allowable where there is development and construction. The two terms are joined by the word ‘and’ and twin conditions need to be fulfilled. The learned Departmental Representative for the Revenue placed reliance on the ratio laid down by the Indore Bench of Tribunal in Navratan Techbuild (P.) Ltd. Vs. ACIT (2013) 37 taxmann.com 152 (Indore-Trib.). The learned Departmental Representative for the Revenue referred to the page 1 of Paper Book-2, which contained the order sheet entries in assessment year 2010-11. He strongly pointed out that while completing the assessment, the Assessing Officer had not applied his mind, where not a single query was raised on claim of deduction under section 80IB(10) of the Act in the order sheet entries. He further went on to point out that even if the Assessing Officer asked but no enquiry was made and the Assessing Officer failed to apply his mind to the issue concerned, hence, the same is to be taken as non-application of mind and the order passed thereunder should be revised being erroneous and prejudicial to the interest of revenue. He further referred to the written submissions filed by the assessee, wherein the assessee has claimed that he might incur some expenditure in future, but no details of the said expenditure has ever been given. In respect of reliance of the learned Authorized Representative for the assessee on different decisions, the learned Departmental Representative for the Revenue referred to each one of them and pointed out that factually all of them were different. He further stressed that where the Assessing Officer had failed to make enquiries, then the order was erroneous. In this regard, he placed reliance on the following decisions:-

i) Rampyari Devi Saraogi Vs. CIT (1968) 67 ITR 84 (SC)

ii) Gee Vee Enterprises Vs. Addl. CIT & Others (1975) 99 ITR 375 (Del)

iii) Sify Software Ltd. Vs. ACIT (2017) 80 com 273 (Chennai Trib.)

iv) Rajmandir Estates (P.) Ltd. Vs. Pr. CIT (2016) 70 com 124 (Calcutta), which has been upheld by the Hon’ble Supreme Court in 245 Taxman 127 (SC)

17. He further referred to the order of Commissioner and pointed out that the Commissioner has not given any finding and the order of the Commissioner is not conclusive since the Assessing Officer has to make enquiries and come to a finding in this regard. Where the assessee had claimed the deduction under section 80IB(10) of the Act on sale of land, the same clearly shows that the order of the Assessing Officer is erroneous.

18. The learned Authorized Representative for the assessee in rejoinder pointed out that the land which has been sold was part of the JV, wherein the assessee had entered into agreement with Rajkotia. As per the terms of JV, out of total consideration, first Rs.200/- per sq.ft., was to be paid to the assessee and balance shared equally between partners of JV. He referred to the Paper Book filed by the learned Departmental Representative for the Revenue i.e. the documents which are filed during the course of assessment proceedings and pointed out that sale of 31% of share of assessee comes to Rs.7.70 crores. Out of Rs.200 per sq.ft., which was due to the assessee, Rs.90/- was the market value of the land on the date of conversion which was taxable and offered in the hands of assessee under section 45(2) of the Act. The balance amount was shown as business profits. Our attention was drawn to the Notes to accounts which are placed at pages 17 and 18 of the Paper Book-1, where notes 11 to 15 is the declaration of bifurcation of profits. The learned Authorized Representative for the assessee referring to page 1 of the Paper Book-1, pointed out that out of total gains of Rs.5.21 crores, amount taxable under section 45(2) of the Act was Rs.1.22 crores, balance was Rs.3.99 crores. The assessee had claimed the deduction under section 80IB(10) of the Act on the said Rs.3.99 crores plus, had offered long term capital gains of Rs.91,85,218/-.

19. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against the exercise of revisionary powers by the Commissioner under section 263 of the Act. The said powers can be exercised by the Commissioner where the assessment order passed by the Assessing Officer is erroneous and also prejudicial to the interest of revenue. Both the conditions of section being erroneous and also prejudicial to the interest of revenue have to be fulfilled for the Commissioner to exercise his powers under section 263 of the Act.

20. The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT (supra) had held that twin conditions of section 263 of the Act are to be satisfied and in case one of them is absent i.e. order of the Assessing Officer is erroneous but not prejudicial to the interest of revenue or if it is prejudicial to the interest of revenue, but not erroneous, then recourse cannot be made to section 263(1) of the Act. Further, it has been laid down by the Hon’ble Supreme Court in the said case that the provisions cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted and incorrect assessment of facts or incorrect application of law will satisfy the requirement of order being erroneous. In the same category falls the orders passed without applying the principles of natural justice or without application of mind. It was further held by the Apex Court that the phase prejudicial to the interest of revenue has to be read in conjunction with erroneous order passed by the Assessing Officer. Every loss of revenue as consequent of an order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue, for example, when Income Tax Officer adopted one of the courses permissible in law and it has resulted any loss of revenue or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as erroneous order prejudicial to the interest of revenue unless the view taken by the ITO is unsustainable in law.

21. The Hon’ble High Court of Delhi in Gee Vee Enterprises Vs. Addl. CIT & Others (supra) held that failure to make enquiries would make the order erroneous.

22. In the facts of the present case, the Assessing Officer had selected the case for scrutiny under CASS in order to verify the claim of deduction under section 80IB(10) of the Act. The Assessing Officer after going through the evidences filed by the assessee and after analyzing the factual and legal aspects had held the assessee to be entitled to claim the aforesaid deduction under section 80IB(10) of the Act. However, the Commissioner was of the view that the assessment order passed by the Assessing Officer in allowing the deduction to the assessee was both erroneous and prejudicial to the interest of revenue and hence, the exercise of jurisdiction under section 263 of the Act. Before going into the exercise of jurisdiction by the Commissioner under section 263 of the Act, certain factual aspects need to be considered in the case vis-à-vis claim of assessee under section 80IB(10) of the Act.

23. The assessee has claimed its eligibility for deduction under section 80IB(10) of the Act being a developer. The assessee had furnished written submissions in which it has also filed the sequence of events to establish its case of being developer along with Rajkotia. The sequence of events were as under:-

“a. The assessee had converted its land from fixed asset to stock in trade in the F.Y. 1995-96 so as to enable itself to develop the land as part of business of the company.

b. Thereafter, the assessee had obtained approvals under the Urban Land (Ceiling & Regulation) Act, 1976 so as to enable themselves to develop the land and undertake the project. Similarly, plans were also approved from the Pune Municipal Corporation (PMC) for carrying out the development and construction of the project. In the meanwhile, the assessee has also approached various builders like Tata Housing, Godrej and Great Eastern Shipping Company, etc. to jointly carry out the development and building of the project. However, they required NOC from Union which could not materialize.

c. The assessee had then entered into Joint Venture Agreement dated 26.05.1996 with Rajkotia for the purpose of carrying out development of the land in the name of Kunver Prabhu Joint Venture‟ (KPJV). This is evident from the clauses (c), (d) and (e) of the Recitals and clause 3 of agreement with Rajkotia which states that both the parties intended development of the said property. It has been specifically agreed that the assessee and Rajkotia are joint responsible for providing finance required for execution and implementation of the project including development of the property and shall jointly make all the efforts to obtain necessary facilities, infrastructure and resources for development. It was also agreed that the fees of architect, consultants, scrutiny fees for sanctioning of FSI, administration charges, expenses for sanctioning of plans, advertisement cost and cost of providing security, infrastructure development, such as internal roads, water supply, SWD electricity charges, sewerage deposits, etc. shall be eventually borne by the appellant.

d. In order to develop the property, over the period, the aforesaid Joint Venture had obtained various approvals from Government authorities for use of the land for development, permissions under the Urban Land (Ceiling & Regulations) Act, 1976, demolished existing structures on the land, submitted plans and obtained approvals from PMC, obtained building layout approval, etc. Some of these actions of obtaining approvals, permissions, joining hands with Rajkotia were carried out even before the provisions of s.80IB of the Act were introduced in the statute book in 2000.

e. Subsequently, the said KPJV joined hands with Shree Venkatesh Creators Promoters & Developers (Venkatesh‟) to jointly undertake the development and construction of housing project on the said land. In terms of the agreement with the Venkatesh dated 05.10.2004, KPJV was required to introduce land, obtain various permissions and approvals from the government authorities for the development of the land, obtain the commencement certificate, remove all encumbrances on the land, participate in the construction activity; particularly finalizing the amenities and obtain the completion certificate of the project. The copies of following approvals on sample basis obtained by the said KPJV through the appellant are enclosed in the paperbook:

(i) Project plan for Phase-1 last approved on 07.02.2007

(ii) Last Commencement Certificate issued by PMC dated 07.02.2007

(iii) Part Completion Certificate issued by PMC dated 06.10.2008

f. Similarly, under the agreement, Venkatesh was assigned the responsibility of carrying out the construction work on the land. Thus, the entire activity of development and construction of the housing project was distributed amongst the parties. The copy of the agreement dated 05.10.2004 with Venkatesh was filed at the time of hearing.

g. In accordance with the aforesaid agreement, KPJV had introduced the land in the housing project and obtained various permissions and approvals over the period of time. The necessary expenditure for obtaining approvals was also incurred. Thus, necessary risk and responsibilities were assumed by KPJV, Partners, i.e. the assessee and Rajkotia in respect of the said project.

h. The consideration from the said project was also distributed amongst the parties in the ratio of 31:69, i.e. 31% of the value of the constructed premises belonged to the KPJV to be divided between the assessee and Rajkotia and the balance 69% was the share of Venkatesh. This is evident from the Profit and Loss Account and computation of income enclosed at page 1-5 of the Paper Book. The working of distribution of profit from the project is enclosed at page 3 and 41 of the Paper Book filed by Ld. CIT-DR. It is submitted that the manner in which the consideration is being determined under the agreement with Venkatesh itself shows that the returns from the project were not fixed. It is submitted that since the profit of the assessee was determined on sale value of the project, the profit attributable to the assessee would depend on successful completion of the project. Further, the consideration of the assessee would also depend on several factors and would have been adversely affected in several situations like:

(i) Delay in completion of the project or discontinuance of the project.

(ii) Delay in sale of flats due to adverse market conditions.

(iii) Fall in the property prices in subsequent years resulting into fall in the overall profit of the appellant.

i. The above factors would have resulted into loss to the assessee if the assessee was unable to fetch even the value of the land. Thus, the returns to the assessee were also uncertain contrary to what has been argued by Ld. CIT-DR.

24. Looking at the sequence of events, it transpires that though the assessee was the owner of land but it desired to develop the said land as part of its business activity, hence, in 1996-97, the said land was converted from fixed asset to stock in trade. The said conversion of land from fixed asset to stock in trade is further evidenced by the declaration of assessee of gains under the provisions of section 45(2) of the Act in the year under consideration. The assessee had shown the gain arising on the said transfer of asset from fixed asset to stock in trade in the year in which it claims to have developed the property and sold the same. The assessee had declared the said gain under section 45(2) of the Act, which has been accepted and assessed in the hands of assessee. Hence, the first step of recognizing the land as stock in trade for carrying out the business activity has been accepted and not disturbed by any of the authorities.

25. Thereafter, the assessee entered into a Joint Venture Agreement dated 26.05.2006 with Rajkotia for the purpose of carrying out the development of land. Various steps were taken for making the land suitable for development i.e. taking permissions from the ULC Act, demolishing the existing structures on the land, submitting the plans and getting the approvals from the said authorities for building layouts, etc. However, the said property was not developed by the Joint Venture. On the other hand, the Joint Venture concern entered into an agreement with Shree Venkatesh to undertake the development and construction of housing project. In terms of agreement dated 05.10.2004 the consideration from the project was to be distributed in the ratio of 31:69 i.e. 31% of the value of constructed premises to KPJV, which in turn, had to be divided amongst the assessee and Rajkotia and balance 69% was the share of Shree Venkatesh. It is not case of assessee getting a fixed price for the land but it is a case of sharing the consideration at 31%, wherein it was agreed that first Rs.200/- per sq.ft. would be given to the assessee and the balance is to be shared equally between the assessee and Rajkotia. The assessee in this regard has offered 31% revenue on sale of flats in Phase-I at Rs.2.49 crores + Rs.1.49 crores and has also offered long term capital gains on sale of flats at Rs.1 .22 crores in the Trading Construction Account for the year under consideration, copy of Trading Construction Account is placed at page 3 of the Paper Book. In the Notes to accounts to the Balance Sheet placed at page 17 of the Paper Book-1 in note Nos.11 to 15, the assessee had declared as under:-

“11. The Company has entered into Joint Venture with Rajkotia Securities Ltd. for development of Land as per the agreement dated 26/05/1996. The Company is to receive Rs.200/- per sq. ft. from Joint Venture as Cost of Land and 50% of balance as share of profit.

12. The Company together with its Co-venturer Rajkotia Securities Ltd. has entered into two agreements with Venkatesh Developers on 05/10/04 for development of Residential Complex for approximately 8 acres of land. Due to difference in opinion between the parties of Venkatesh developers they divided the said property, one for which the agreement was entered into on 05/10/04 was retained by Venkatesh Developers and other for which the agreement was entered into on 10/12/04 was accepted by Sunrise Builders upon the terms and conditions of both the initial agreements. The company has given its consent for the same. The work of development by both the parties is in full swing.

13. The Company‟s Joint Venture is to receive 31% of the constructed premises as per the terms of the agreement from Venkatesh Developers which was amended vide agreement dated 18/01/2008 and finalized on 31% Revenue sharing basis of total constructed premises + 10% (if construction is made using TDR) instead of 31% of constructed premises.

14. The Company has transferred its Land as Stock in Trade in the Financial Year 1995-96. The valuation rate as on 15/01/1996 was Rs.970/- per sq. mtr. i.e. Rs.90 per sq. ft.

15. During the year under review Venkatesh Developers have sold 1,36,037 sq. ft. in Phase – I against which the Joint Venture of Company has received Rs.7,70,93,196/- as 31% revenue sharing basis. The Company has received its share from Joint Venture (1) Rs.2,72,07,400/- against Cost of Land @ Rs.200/- per sq. ft. and Rs.2,49,42,898/- being 50% of balance as share of Profit.”

26. Hence, the declaration was made by the Auditor in the notes to accounts itself in respect of land deal i.e. entering into of the Joint Venture, transferring of the land as stock in trade in financial year 1995-96 and also the sharing the receipt of Rs.7.70 crores as 31% revenue sharing basis by the Joint Venture company. The assessee had received share from Joint Venture against cost of land at Rs.2.72 crores and Rs.2.49 crores being 50% of balance as share of profit. The assessee in the computation of income placed at pages 1 and 2, out of net profit of Rs.5.21 crores had considered the income of Rs.1.22 crores under the head ‘Long Term Capital Gains’ and on the business profits of Rs.3.99 crores had claimed the deduction under section 80IB(10) of the Act. The claim of assessee was that it had developed and constructed the housing project. The said claim of assessee under section 80IB(10) of the Act was verified by the Assessing Officer in the assessment proceedings taken up for the instant assessment year and it may be pointed out herein itself that the case of assessee was picked up under CASS for the specific purpose of verifying the claim under section 80IB(10) of the Act. The assessee has filed the details of proceedings before the Assessing Officer and even the learned Departmental Representative for the Revenue in the Paper Book has filed complete details of the proceedings before the Assessing Officer. The assessee has even filed the copy of questionnaire issued by the Assessing Officer which is placed at pages 20 to 22 of the Paper Book, in which specific query of deduction claimed under section 80IB(10) of the Act was Rs.3.99 crores along with documentary evidence and detailed computation was asked for. In the assessment order passed under section 143(3) of the Act, dated 19.12.2011, the Assessing Officer mentions that the assessee had entered into various Joint Ventures and has entered into real estate business and claimed deduction under section 80IB(10) of the Act for the project. The assessee was asked to submit all the necessary details in support of his claim of deduction which has been verified and placed on record. The Assessing Officer thereafter, notes the carry forward of losses and determines the total income at Rs.1.17 crores. The assessee is assessed on the book profits under section 115JB of the Act at Rs.4.68 crores.

27. The assessee has also filed order sheet entries for assessment year 2010-11 in Paper Book-2 at pages 1 and 2, wherein again questionnaire was issued and submissions were made by the assessee on various dates in the questionnaire issued, the complete details of 80IB(10) of the Act project were asked to be given. The Assessing Officer while passing the order dated 12.12.2012 relating to assessment year 2010-11 notes the fact that the case was selected under CASS and the Assessing Officer was required to examine the claim under Chapter VI-A of the Act. The Assessing Officer noted that the company had closed for several years and had tried to execute the Joint Venture Agreement for developing the factory land and the assessee has entered into various Joint Ventures and has also entered into real estate business and claimed 80IB(10) of the Act deduction for a project on profit sharing basis. The assessee was asked to submit all the necessary details in support of his claim which have been submitted by the assessee during the course of assessment proceedings and placed on record after verification. The total income computed by the assessee was accepted by the Assessing Officer, copy of the assessment order is placed on record.

28. In such background, the issue which is raised by the Commissioner is whether the assessee is entitled to claim the deduction under Chapter VI-A of the Act. The objection of the Commissioner in this regard is failure of the assessee to incur any expenditure for construction and development of the said project and hence, the assessee cannot be said to have fulfilled the conditions laid down in section 80IB(10) of the Act. Before going into the aspect whether the assessee has fulfilled the conditions or not, it may be put on record that Co-venturer of the assessee Rajkotia, who has shared 50% of 31% consideration which was due to the Joint Venture company had also claimed the deduction under section 80IB(10) of the Act. Initially, the Assessing Officer denied the said deduction to Rajkotia. However, the Tribunal vide order dated 05.06.2013 in ITA No.6363/Mum/2012 relating to assessment year 2009-10, copy of which is placed at pages 82 to 102 of the Paper Book, after verification of the facts noted that the deduction was denied not on the ground that they were not developers but on the ground of non-payment of deposits under the Agreement. The Tribunal noted that the Assessing Officer in that case was fully convinced that the conditions of 80IB(10) of the Act were duly complied with by Rajkotia. The Tribunal thus, held that non filing of bank statements and non compliance of conditions of payment of deposit to the Co-venturer i.e. the assessee would not come in the way of claim of deduction under section 80IB(10) of the Act, hence, Rajkotia was entitled to the said deduction. By simile where the Co-venturer of a Joint Venture has been allowed the deduction on identical facts, then similar deduction to the other Co-venturer cannot be denied on any ground. Since the conditions are jointly applicable and are to be fulfilled by both the Co-venturers i.e. the assessee and Rajkotia, then following the same line of reasoning as in the case of Rajkotia, the assessee is entitled to claim the deduction under section 80IB(10) of the Act. In such circumstances, where the Assessing Officer has allowed the deduction to the assessee under section 80IB(10) of the Act, then such an order passed by the Assessing Officer cannot be said to be erroneous and consequently, not prejudicial to the interest of revenue.

29. Now, coming to the order of Commissioner in denying the claim to the assessee on the ground that no construction expenditure has been incurred by the assessee during the impugned year. We need to go into factual aspects once again, under which the assessee had claimed the deduction under section 80IB(10) of the Act. First of all, the assessee had introduced the land into KPJV, admeasuring 18,639.64 sq.mtrs. for the development of housing project. Further, necessary expenses have been incurred for several permissions and approvals obtained in the past by the assessee and KPJV. Undoubtedly, no expenditure was incurred during the year but it cannot be inferred that no expenditure was incurred by the assessee. In any case, the incurrence of the expenditure was not determinative of the fact whether the assessee was engaged in the activities of development and construction of housing project. In the present case, where the assessee had introduced land, incurred cost to obtain approvals and permission, removing structures, etc. and where it was under the obligation to resolve and clear any issues which may arise and the same may entail expenditure in future; can it be said that where there was an obligation on the KPJV to incur the expenditure, it cannot be said that the Joint Venture of the assessee and Rajkotia had not incurred any expenditure. In this regard, we find support from the ratio laid down by the Hon’ble High Court of Karnataka in CIT Vs. Shravanee Constructions (supra), wherein the Court held as under:-

“5. Sub-section (10) of Section 80IB enables an undertaking, which is developing and building housing projects approved before the 31st day of March, 2008 by a local authority, shall be hundred percent of the profits derived in the previous year relevant to any assessment year from such housing project. The said section also provides the conditions to be fulfilled before claiming benefit of deduction under the said provision.

6. In the instant case, all those conditions are fulfilled. However, the dispute is when the assessee has not built the housing project, is he entitled to the benefit of the aforesaid provision.

7. As stated earlier, it is not merely building housing project, which attracts this provision. It is developing and building housing project, which attracts the provision. In the order passed by the Commissioner of Income Tax (Appeals), the development and construction activities undertaken by the assessee are listed. They are:

(i) Obtaining khatha from municipality;

(ii) Obtaining plan sanction for construction of apartment on the said property by the local authority;

(iii) Making the land usable for the purpose of apartment construction by providing proper road and to give an approach to the site;

(iv) Jointly supervising the construction of the apartments buildings;

(v) Marking the apartments falling to the share of the assessee;

(vi) Also undertaking the leveling the road and removal of rocky surface in the said land and made it usable for the purpose of construction of the apartment complexes.

8. In terms of the agreement, which are not in dispute, the assessee not only undertook the aforesaid development activities on the land in question, but in fact, he entered into an agreement of sale with the owners of the land, paid the entire consideration but he did not take a registered sale deed in his name. On the contrary, the procedure adopted is he in turn entered into a joint development agreement with the builder and the owner of the land was made a party to the said proceedings. Thus, the assessee contributed the land, undertook the aforesaid development activities in the said land and thus, complied with all other conditions, which have to be fulfilled before claiming benefit u/s 80IB(10) of the Act. The builder has invested the money in the construction. It is after completion of the building in terms of the agreement, the assessee was given 22% share of the building area. It is after sale of the built area, in terms of sec. 80IB(10), the assessee is claiming deduction. As is clear from the joint development agreement, the undertaking of developing and building housing project was jointly undertaken by the assessee and the builder. Therefore, in respect of the residential units numbering 211 in all, the persons who undertook this undertaking are entitled to the benefit of sec. 80IB(10) of the Act in proportion to the share to which they are entitled to in the built up area.”

30. Further, the SLP has been dismissed by the Hon’ble Supreme Court vide order dated 19.11.2012.

31. Further, the Bangalore Bench of Tribunal in Abdul Khader Vs. ACIT (supra) held that merely because the assessee had only transferred the land and did not carry out any construction activity, deduction could not be denied since the assessee had made initial contribution of land, incurred initial expenses on sanction of plans, electricity connection, etc. The perusal of the said case reflect that the allegation of Assessing Officer was that where the assessee was only contributing the land and incurring expenses on statutory approvals, the deduction claimed under section 80IB(10) of the Act should not be allowed since he was only the land owner and the said land was transferred towards developer for joint development and the assessee had not carried out any construction activity. Reference was also made to the Profit and Loss Account and Balance Sheet in this regard and the deduction claimed under section 80IB(10) of the Act was denied. The explanation of assessee was that it had incurred project expenses in relation to the statutory approvals and the balance other expenses were incurred by the developer. The assessee also furnished evidence in this regard. However, the plea of assessee was not accepted. The Tribunal noted that the assessee had converted his agricultural land into non agricultural land and jointly undertook the development and construction of scheduled property by getting the permissions and plans sanctioned. As per the agreement between the assessee and the developer, the onus upon the assessee was to make investment for all statutory approvals and plan sanctions, retained 24% of built up area. The Tribunal noted that the assessee had contributed the property in lieu of capital contribution for joint development and construction and the second party was required to make investment in joint development and construction and where the assessee was required to make investment in schedule property and also to get the statutory approvals at his cost, the Tribunal in such scenario held that the approval and plan sanction was the first and initial stage which was to be taken by the assessee and for that purpose, the assessee was required to make investments. So, it cannot be said that the assessee did not make any investments in the project under consideration. The Tribunal further held as under:-

12. In the present case, the AO denied the deduction to the assessee by stating that the assessee only contributed the land and had not carried out any construction activities. Now, we have to analyze the provision contained in sec. 80IB(10) of the Act. The said provision read as under :

“The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of Mar, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project

13. The explanation has been inserted to sub sec. (10) of sec. 80IB w.e.f 1.4.2010 with retrospective effect from 1.4.2001 vide Finance (No.2) Act 2009. The said explanation read as under :

“For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government). “

14. On a joint reading of sub. sec (10) of sec. 80IB and explanation thereto it is clear that deduction as is allowable to an undertaking developing and building housing project approved, it is nowhere mentioned that for claiming this deduction, construction has to be carried out by the undertaker, moreover the explanation clarified that any undertaking which executed housing project as a works contract awarded by any person is not eligible for claiming this deduction which clearly shows even if any undertaking is constructing the housing project under a works contract entered by a person is not eligible for deduction. The only condition for claiming the deduction u/s 80IB(10) is that the undertaking is developing and building, housing projects approved by a local authority. In the present case, it is not the case of the Department that the project was not approved or developed and built by the assessee. The only reason for denying the deduction u/s 80IB(10) of the Act to the assessee was that the assessee had not carried out any construction activity, in our opinion that reason is not sufficient to deny deduction u/s 80IB(10) of the Act. In the present case, the assessee made the contribution of his capital in the shape of land and incurred the initial expenses for development and building of housing project like sanction of plan, getting the electricity and water connection by making the payments to BWSSB and KEB etc. Therefore, merely on this basis that the assessee did not construct himself was not a ground to deny the deduction u/s 80IB(10), particularly when the assessee had undertaken the other work like making the land useful by getting it converted into non agricultural purpose and getting plan sanctioned. On a similar issue, their lordships of Hon’ble Jurisdictional High Court in the case of CIT Vs. M/s Shravanee Construction (cited Supra) at para 8 of the judgment dated 28th Feb, 2012 in ITA No.421 and 422 of 2009 observed as under :

“In terms of the agreement, which are not in dispute, the assessee not only undertook the aforesaid development activities on the land in question, but in fact, he entered into an agreement of sale with the owners of the land, paid the entire consideration but he did not take a registered sale deed in his name. On the contrary, the procedure adopted is he in turn entered into a joint development agreement with the builder and the owner of the land was made a party to the said proceedings. Thus, the assessee contributed the land, undertook the aforesaid development activities in the said land and thus, complied with all other conditions, which have to be fulfilled before claiming benefit u/s 80IB(10) of the Act. The builder has invested the money in the construction. It is after completion of the building in terms of the agreement, the assessee was given 22% share of the building area. It is after sale of the built area, in terms of sec. 80IB(10), the assessee is claiming deduction. As is clear from the joint development agreement, the undertaking of developing and building housing project was jointly undertaken by the assessee and the builder. Therefore, in respect of the residential units numbering 211 in all, the persons who undertook this undertaking are entitled to the benefit of sec. 80IB(10) of the Act in proportion to the share to which they are entitled to in the built up area.”

32. Similar is the ratio which has been laid down by the Mumbai Bench of Tribunal in ACIT/DCIT v. Bombay Real Estate Development Company Pvt. Ltd. (supra).

33. In view of the settled position by the Hon’ble High Court of Karnataka in CIT Vs. Shravanee Constructions (supra) and the ratio laid down by different Benches of Tribunal, where the facts of the present case before us are identical to the facts before the Tribunal and the Hon’ble High Court, we hold that the assessee having introduced his land for development and also having obtained the approvals for carrying out the said development including getting sanctions from various State Authorities, it cannot be said that no expenditure has been incurred by the assessee for development of the said property. Hence, the assessee is entitled to claim the deduction under section 80IB(10) of the Act as the Co-venturer of the project along with Rajkotia. We have already mentioned in the paras hereinabove that other Co-venturer Rajkotia, who has already been allowed the deduction under section 80IB(10) of the Act by the Tribunal. In such circumstances, the issue which arises is whether where the claim is prima facie allowable to the assessee which has been so allowed by the Assessing Officer, can the said order of the Assessing Officer be said to be erroneous and prejudicial to the interest of revenue.

34. The Hon’ble Supreme Court in CIT Vs. Max India Ltd. (supra) had held as under:-

2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase “prejudicial to the interest of the Revenue” under s. 263 has to be read in conjunction with the expression “erroneous” order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law.

35. Following the said principle laid down by the Hon’ble Supreme Court and in view of the fact that necessary enquiries were conducted by the Assessing Officer in scrutiny proceedings, which were picked up under CASS for the specific purpose of verifying the claim of deduction under Chapter VI-A, the Assessing Officer after conducting the enquiries have come to a conclusion which is as per the law and hence, the same cannot be disturbed by the Commissioner under the garb of exercise of revisionary powers under section 263 of the Act. In any case, the Commissioner has failed to give a finding and has remitted the matter back to the file of Assessing Officer to verify the claim of assessee, which is also not permissible under section 263 of the Act.

36. Without prejudice to our findings in the paras hereinabove, the order of Commissioner under section 263 of the Act is contrary to the extent that where he has held that the assessee merely transferred the land, then in such circumstances, the resultant profit is assessable as capital gains on the date of transfer i.e. 05.10.2004, which falls in assessment year 2005-06 and hence, there is no merit in exercising the jurisdiction under section 263 of the Act in assessment years 2009-10 and 2010-11.

37. The learned Departmental Representative for the Revenue placed reliance on the ratio laid down by the Indore Bench of Tribunal in Navratan Techbuild (P.) Ltd. Vs. ACIT (supra). There is no merit in the said reliance as the facts before the Tribunal were different, where the assessee had not undertaken any construction activity but had only sold plots of land during the relevant previous year, which is not the case in the present case.

38. Further, the learned Departmental Representative for the Revenue placed reliance on the ratio laid down by the Chennai Bench of Tribunal in Sify Software Ltd. Vs. ACIT (supra), which is also factually different. Where the Commissioner in that case had exercise the jurisdiction under section 263 of the Act, where the Assessing Officer had accepted the claim made by the assessee in a stereo type manner without proper examination or enquiry or verification. However, the same is not the case before us, wherein proper enquiries have been made by the Assessing Officer during the course of assessment proceedings.

39. The next reliance placed upon by the learned Departmental Representative for the Revenue is on Rajmandir Estates (P.) Ltd. Vs. Pr. CIT (supra), which issue has been upheld by the Hon’ble Supreme Court also. The ratio laid down in the said case is in respect of exercise of powers by the Commissioner under section 263 of the Act, wherein the Assessing Officer had not made the requisite investigation except for calling of records. In the facts of the case before that, the assessee with an authorized share capital of Rs.1.36 crores raised nearly sum of Rs.32 crores on account of premium and chose not to go in for increase of authorized share capital, merely to avoid payment of statutory fees, as per the Commissioner was an important pointer necessitating investigation. In such a case, the Commissioner held the assessment order is erroneous and prejudicial to the interest of revenue. However, the facts of the said case are at variance to the facts raised before us and we have already referred to the facts and investigation made by the Assessing Officer during the course of assessment proceedings and hence, there is no merit in the aforesaid reliance.

40. Now, coming to the aspect of book profits which was considered by the Commissioner and the order of the Assessing Officer was held to be erroneous and prejudicial to the interest of revenue. In this regard, it may be pointed out that the case of assessee was picked up for scrutiny under CASS for the limited purpose of verifying the Chapter VI-A deduction. Once the case is picked up for specific purpose under CASS, then it is outside the purview of the Assessing Officer to look into any other aspect other than the aspect for which it is picked up. Hence, the Assessing Officer has not formed any opinion in respect of computation of book profits in the hands of assessee. Once, no such opinion has been formed by the Assessing Officer, the Commissioner has erred in holding the order of the Assessing Officer to be erroneous and prejudicial to the interest of revenue in this regard. Accordingly, we reverse the findings of the Commissioner. Accordingly, we hold that the order passed by the Commissioner under section 263 of the Act is invalid and the same is quashed for both the assessment years.

41. In the result, appeals of assessee are allowed.

Order pronounced on this 10th day of October, 2017.

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